Businesses Adding Space at Fastest Pace Since 2007
From The Wall Street Journal - By Eliot Brown
The U.S. office market is showing signs of picking up steam, with businesses adding space in the first quarter at the fastest pace since 2007, according to a report from real-estate data firm Reis Inc. REIS -2.06%
The amount of occupied office space grew by 9.8 million square feet in the first three months of the year, up from 9 million square feet in the fourth quarter of 2013 and an average of 5.2 million square feet a quarter between 2011 and 2013, according to Reis.
But the first-quarter growth rate—accounting for a 0.3% increase in the occupied office space—remains slow by historic standards, reflective of the sluggish labor market. Throughout much of the 2000s, occupied space routinely grew by 12 million to more than 20 million square feet a quarter.
"It's a step in the right direction," said Ryan Severino, an economist at Reis. "But it's important to understand that this is a far cry from the performance that could be expected from the office market during better times."
The vacancy rate nudged down to 16.8% from 16.9% in the fourth quarter of 2013, but still well above the 12.5% rate reached in mid-2007, according to the Reis report, which tracks 79 metropolitan areas. Rents sought by landlords in the first quarter grew 0.7% to $29.28 per square foot.
Cities with growing industries such as technology and energy continued to outpace the rest of the country. The San Jose area, which includes Silicon Valley, and San Francisco had the nation's highest rent growth during the past 12 months, with annual rents increasing 6.1% and 4.8% to $26.17 and $37.28 a square foot, respectively.
Technology firms have been gobbling up space at a rate not seen since the late 1990s dot-com boom. For instance, San Francisco-based electronic health-records company Practice Fusion, which in January announced it was doubling its office space with a lease at 650 Townsend Street. The company added about 200 employees to its San Francisco staff last year to reach a head count of about 350, and hopes to add about 100 more this year, said spokesman Ryan Donovan, adding, "We need more space."
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